The worse, the better...worse...
The other day, there was a troll 🫠 in the comments who posted a copypasta from somewhere along the lines of “you don’t understand anything, the worse it is for the markets now, the better”. Without trying to delve into the meaningless text of the troll himself, let’s analyze the current situation from the point of view of the concept “the worse for the economy, the better for the markets”. After all, we ourselves often quoted it in the past months.
1️⃣We need to start with the fact that this paradigm is used before the publication of some important macroeconomic statistics (for example, data on the labor market), and not before changing the rate. The Fed rate is already a reaction to macroeconomic data, that is, a result.
2️⃣The concept of “the worse, the better” works best during a period of rate hikes or plateaus, since in this case the weakening economy should (in the opinion of market participants) force the Fed to stop raising rates or to start cutting them, which will make money cheaper, meaning more money will go into the market. On this conclusion it grows.
3️⃣During the period of rate cuts (and it starts this month), this concept stops working, since the economy is already in a fairly weakened state. Bad macroeconomic data can show too much damage that high rates (i.e. high cost of money) have done to business. After all, an increase in layoffs does not necessarily mean that a business is optimizing (implementing AI, for example), most often it is simply an indicator of deteriorating enterprise profitability. This picture becomes especially relevant after a long period of high rates. And bad economic data becomes bad news for the markets. By the way, we wrote a separate article about this in the summer (before the August data).
4️⃣At the moment, we have the following picture: macroeconomic indicators in the US look good, while inflation is declining within the framework of the plan that the Fed has outlined for itself. And if some new variables do not intervene in this fragile balance, Americans can go through the post-Covid inflation shock without significant upheavals. Soft landing as it is. In this case, the paradigm of “the worse, the better” will be replaced by “the better, the better”.
➡️But, as has already been said, this is a vulnerable structure. Therefore, any macroeconomic "swirls" can cause a local correction↘️. And in the event of the return of inflation - and completely destroy everything. By the way, this is exactly what happened in the 1970s in the United States, when as a result of the "Nixon Shock" and the oil crisis of 1973, inflation in the United States first rose sharply, then decreased during the period of strict monetary policy, but then returned on an even larger scale after lowering rates. As a result, the Fed had to raise rates again to a fabulous 20% 🤯 in December 1980. Ultimately, inflation was finally defeated, but the US economy found itself in a severe recession. This is the scenario that Powell fears most ... and so do we, of course. In this case, crypto will be very bad 😱
#BinanceTurns7 #TopCoinsJune2024 #ЛюбимыйТокен #IntroToCopytrading $ETH